September 26, 1985

Mr. John J. Delaney 
Lead City Attorney 
Post Office Box 898 
Lead, South Dakota 57754

OFFICIAL OPINION NO. 85-39

Spearfish municipal sales tax

Dear Mr. Delaney:

You have requested my official opinion on the following factual situation:

FACTS: 

The city of Spearfish has enacted a municipal sales and service tax and a use tax, pursuant to SDCL 10-52.  In regard to the tax authorized by that statute, the city wants an opinion pertaining to the exemption of certain vending machines from the tax.  In order to render this opinion, the following facts should be assumed: 

1.  The tax in question would be imposed as a municipal sales and service tax and a use tax by the city of Spearfish, pursuant to SDCL 10-52. 

2.  Vending machines which provide services (car washes, blood pressure readings, etc.) may not be economically modified to allow the operator of the machines to pass the additional tax on to the user.  This is in contrast to vending machines which dispense products such as soft drinks and cigarettes.  These machines are generally easily modified for small increases in prices. 

3.  The city wants to exempt vending machines which provide services from the effect of the ordinance.

You have advised that the Department of Revenue has indicated that an exemption enacted by Huron was contrary to SDCL 10-52, and asked for my view on the following questions:

QUESTIONS: 

1.  Is the exemption proposed permissible within the scope of §  10-52? 

2.  If the answer to the first question is yes, would the tax be administered by the Department of Revenue?

IN RE QUESTION NO. 1:

Although you refer to car wash machines as vending machines, it is my opinion that these are not vending machines in view of the application of SDCL 10-45-5.2, which concerns the sales tax on services.  Contained in that section is a reference to major group 75, Automotive Repair, Services, and Garages, in the Standard Industrial Classification Manual used to classify sales tax licenses. In industry number 7542 this service is listed as 'car washes, self service or automatic,' and thus the receipts are taxable at the regular rate of four percent rather than the vending machine rate of three percent.  In addition, in §  10‑45‑5.2 under taxation of services, major group 72 is covered as Personal Services in the Standard Industrial Classification Manual.  Listed as services are coin operated service machine operation, and examples given are scales, shoe shine and lockers.  In addition, Department of Revenue regulation 64:06:02:15, with respect to car washing, covers the situation and provides that the receipts for the use of the facility are subject to sales tax which  implements the law on the subject.

It is my opinion, therefore, that the types of vending machines providing services that you describe would be taxable at four percent rather than three percent.  Therefore the base city rate of taxation under §  10-52 would apply to such services.  Since there is no state exemption for those services and since a municipal sales tax must be in conformity with the state tax, the city would not be entitled to adopt this exemption.

IN RE QUESTION NO. 2:

The answer to the first question renders an answer to your second question unnecessary.

Respectfully submitted,

Mark V. Meierhenry
Attorney General